Logistics Processes Exam: ProVideo Technologies

A year ago you were hired as the Logistics Manager for ProVideo Technologies (PVT) in Canada. PVT is a reseller of mobile video camera equipment specifically for the film and television industry in Canada. In Canada, there remain three major firms that resell this equipment directly to the film and television industry. A year ago, PVT expected a 25% market share. As a result of strong marketing of this quality product, their market share has grown beyond 40 percent in its segment. The PVT administrative office is located in Vancouver BC in the same facility that acts as their retail centre for Vancouver.

PVT continues to operate in a multiyear agreement to have the exclusive right to distribute the camera designed specifically for mobile filming applications. The camera is still being produced in San Diego California and was made available to the market eight months ago. The manufacturer of the camera branded it as the “Tough Cam”.
The camera’s advantage is in its ability to be mounted but also that it is waterproof, explosion proof, heat resistant up to 600 degrees Celsius, shock proof, and virtually uncrushable when mounted correctly in the appropriate outer shell. The Tough Cam is unique in that the camera and all accessories are available only in a bright red colour.

Background:

The Tough Cam is sold as a complete solution including seven different mounting brackets, and four outer shells that enclose the camera for different situations. The camera also contains a significantly larger lithium ion battery rated at 125 watt hours allowing for up to 20 continuous hours of video recording. The battery is packaged with the equipment as a separate item and can be charged using the provided external charger (it is not built into the camera). Lithium batteries are considered Dangerous goods in transportation. The manufacturer has stated that the camera, batteries, carrying case and all accessories will be packaged in a single corrugate carton weighing 24 kilograms, measuring 78 cm wide, 45 cm high, and 85 cm long.

PVTs primary markets are film and television companies located in major Canadian cities. The retail price for the camera is $3,500 CAD. PVT anticipates that demand will continue to grow as more non-traditional film and television companies start up and focus on niche markets such as extreme sports. The model is priced aggressively with little profit margin by the manufacturer to help build greater demand for accessories and replacement batteries in the future. The initial roll out plan for the first year was to purchase these items directly from the manufacturer in San Diego. That plan worked well.

The US manufacturer has acquired several patents that will make duplication of the product difficult for potential new entrants that my attempt to copy portions of the camera. Now into year two of this project, PVT has experienced stronger than anticipated demand and is considering adding new accessories from a potential supplier in China. The accessory line includes new camera housings that reduce glare and new lower weight mounting attachments. These accessories are produced entirely in China from entirely Chinese materials. There are no products in this new line that are considered dangerous goods.

The Chinese supplier will only ship the accessories in full load 40 foot container quantities to PVT. PVT may mix the quantity of the housings and mounting attachments within the container but must order a full 20 foot container load at minimum. The expected value of the goods in a 40 foot container is estimated to be $435,000 CAD.

 

The value of the FCL averages $435,000 CAD. PVT anticipates they will import ten containers this year from China. The seller in China will use either EXW or FCA terms. Describe the risks and benefits of using these two terms and provide a supported recommendation on which term you consider to be ideal. (5 marks)